Smart Beta Strategies: The Socially Responsible Investment Case

Posted: 22 Jan 2013 Last revised: 18 Jun 2013

See all articles by Philippe Bertrand

Philippe Bertrand

AMGSM-IAE Aix-en-Provence, Aix Marseille University, CERGAM; KEDGE Business School

Vincent Lapointe

Ostrum AM

Date Written: January 1, 2013

Abstract

In this article we propose to extend the streams of research about smart beta strategies and, about Socially Responsible Investment (SRI) by studying the impact of using an SRI universe on the properties of smart beta portfolios and, by studying the impact of using smart beta strategies on the performance of SRI portfolios. We focus on four smart beta strategies, the EquallyWeighted (EW), the Most Diversified Portfolio (MDP), the Minimum Variance (MV) and the Equal Risk Contribution (ERC). Using different estimators of the matrix of covariances, we apply those strategies to the EuroStoxx universe of stocks, the ASPI and the complement of the ASPI in the EuroStoxx universe from the 15th of March 2002 to the 1st of May 2012. On the one hand, this paper shows that when the ASPI universe is used, the portfolios present an higher level of diversification and, they tend to have higher turnover. In addition, the tracking error against EuroStoxx, of smart beta strategies build on the ASPI universe are smaller than those of their respective counterparts build on the two other universes, and the distribution of returns of portfolios build on the ASPI universe have positive skewness while it is the opposite for portfolios build on the two other universes. On the other hand, this paper shows that on the ASPI universe all the smart beta strategies dominate the CW strategy, which is in line with previous literature. This paper also show that the MV and MDP portfolios build on the ASPI universe have the two largest returns of our study.

Keywords: socially responsible investment, alternative and smart beta strategies, performance, diversification, turnover, robust covariances matrix

JEL Classification: G11, C58, C60, G32, M14

Suggested Citation

Bertrand, Philippe and Lapointe, Vincent, Smart Beta Strategies: The Socially Responsible Investment Case (January 1, 2013). Available at SSRN: https://ssrn.com/abstract=2204468 or http://dx.doi.org/10.2139/ssrn.2204468

Philippe Bertrand

AMGSM-IAE Aix-en-Provence, Aix Marseille University, CERGAM ( email )

Chemin de la Quille - Puyricard
Aix en Provence, 13089
France

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France

Vincent Lapointe (Contact Author)

Ostrum AM ( email )

Paris
France

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